Business Context and Reporting Period
Company: Lindblad Expeditions Holdings, Inc.
Filing Type: Form 10-Q (Unaudited)
Period Ended: June 30, 2018
Business Overview: The Company operates a fleet of seven owned expedition ships and five seasonal charter vessels under the Lindblad brand, offering eco-conscious expeditions. It also operates land-based tours under the Natural Habitat brand. The Company maintains strategic alliances with National Geographic Partners and the World Wildlife Fund (WWF).
Key Financial Metrics
| Metric | Six Months Ended June 30, 2018 | Six Months Ended June 30, 2017 |
|---|---|---|
| Tour Revenues | $151.9 million | $118.7 million |
| Gross Profit | $82.2 million | $57.4 million |
| Operating Income | $18.6 million | $(0.3) million |
| Net Income | $10.8 million | $(2.0) million |
| Net Income Available to Common Stockholders | $10.9 million | $(1.9) million |
| Diluted EPS | $0.24 | $(0.04) |
| Adjusted EBITDA | $33.6 million | $15.5 million |
| Cash and Cash Equivalents | $91.6 million | $96.4 million (Dec 31, 2017) |
| Total Long-Term Debt (Net) | $190.2 million | $165.9 million (Dec 31, 2017) |
| Operating Cash Flow | $24.8 million | $23.2 million |
Material Changes vs. Prior Period
- Revenue Growth: Tour revenues increased 28% year-over-year (YoY) for the six-month period, driven by a 29% increase in the Lindblad segment and a 20% increase in Natural Habitat. Growth was fueled by the addition of the National Geographic Quest vessel, higher occupancy rates (90.4% vs. 86.0%), and price increases.
- Profitability: The Company returned to profitability, reporting $10.8 million in net income compared to a $2.0 million loss in the prior year. Operating income improved significantly from a $0.3 million loss to $18.6 million.
- Cost Structure: Cost of tours increased 14% due to higher fuel costs, additional guest nights, and the new vessel. However, stock-based compensation expenses decreased significantly ($4.4 million reduction) compared to the prior year, aiding operating margins.
- Debt Refinancing: In March 2018, the Company refinanced its credit facility, increasing the term loan to $200.0 million. This resulted in higher interest expense ($5.6 million vs. $4.4 million) and a one-time charge of $1.0 million for debt refinancing costs.
- Foreign Currency: The Company incurred a $1.6 million loss on foreign currency translation due to the weakening of the U.S. dollar against the Canadian dollar and Euro, compared to a gain in the prior year.
Outlook, Risks, and Unusual Items
- Fleet Expansion: The Company is constructing two new vessels: the National Geographic Venture (expected Q4 2018, $57.4 million contract) and the National Geographic Endurance (polar ice class, expected Jan 2020, $134.6 million contract). In July 2018, the Board authorized a third polar ice class vessel for 2021 delivery.
- Liquidity: The Company maintains a working capital deficit of $2.1 million, typical for the industry due to advance passenger receipts. Management believes cash on hand, the new revolving credit facility ($45.0 million), and operating cash flows are sufficient to fund operations and capital expenditures.
- Risks: Key risks include weather disruptions, mechanical failures, delays in vessel construction, compliance with debt covenants (currently compliant), and general economic conditions affecting travel demand.
- Unusual Items: The prior year (2017) included the impact of voyage cancellations in Q1, which negatively affected comparability. Excluding these cancellations, 2018 revenue growth would be 19% rather than 28%.
Investor Verification Checklist
- Debt Covenants: Verify continued compliance with the 5.25:1.00 total net leverage ratio under the Amended Credit Agreement.
- Construction Progress: Monitor the delivery timelines and cost adherence for the National Geographic Venture and Endurance vessels.
- Occupancy Trends: Confirm if the 90%+ occupancy rates are sustainable across the full year, particularly during non-peak drydock periods.
- Interest Rate Exposure: Assess the impact of rising LIBOR rates on the $200 million variable-rate term loan, noting the $100 million interest rate cap hedge in place.
- Regulatory Licenses: Review the status of Galápagos operating rights ("cupos"), which are up for renewal in July 2024.